Sunday, February 28, 2016

“Laborers may also ask for geographical grants of oligopoly in the form of immigration restrictions. In the free market the inexorable trend is to equalize wage rates for the same value-productive work all over the earth. This trend is dependent on two modes of adjustment: businesses flocking from high-wage to low-wage areas, and workers flowing from low-wage to high-wage areas. Immigration restrictions are an attempt to gain restrictionist wage rates for the inhabitants of an area. They constitute a restriction rather than monopoly because (a) in the labor force, each worker owns himself, and therefore the restrictionists have no control over the whole of the supply of labor; and (b) the supply of labor is large in relation to the possible variability in the hours of an individual worker, i.e., a worker cannot, like a monopolist, take advantage of the restriction by increasing his output to take up the slack, and hence obtaining a higher price is not determined by the elasticity of the demand curve. A higher price is obtained in any case by the restriction of the supply of labor. There is a connexity throughout the entire labor market; labor markets are linked with each other in different occupations, and the general wage rate (in contrast to the rate in specific industries) is determined by the total supply of all labor, as compared with the various demand curves for different types of labor in different industries. A reduced total supply of labor in an area will thus tend to shift all the various supply curves for individual labor factors to the left, thus increasing wage rates all around.

Immigration restrictions, therefore, may earn restrictionist wage rates for all people in the restricted area, although clearly the greatest relative gainers will be those who would have directly competed in the labor market with the potential immigrants. They gain at the expense of the excluded people, who are forced to accept lower-paying jobs at home.

Obviously, not every geographic area will gain by immigration restrictions—only a high-wage area. Those in relatively low-wage areas rarely have to worry about immigration: there the pressure is to emigrate. The high-wage areas won their position through a greater investment of capital per head than the other areas; and now the workers in that area try to resist the lowering of wage rates that would stem from an influx of workers from abroad.” (Rothbard 2006 [1970]: 61–63).

In a Rothbardian world, the government is abolished, and so are national borders. To his credit, Rothbard understands that national borders and controlled immigration impose labour market protectionism and so tend to raise and sustain real wages. Rothbard hates that with a passion, owing to his free market theology. Left-wing people have no such excuse – and indeed they should appreciate the advantages of labour market regulation, protectionism and controlled immigration.

In a Rothbardian anarcho-capitalist world, there is literally a race to the bottom as open borders allow endless mass immigration from the Third World to the First, a process which impoverishes workers in the First World and reduces their wages to those of the Third World, and in the process massively reduces living standards and working conditions (e.g., Third World labour may very well accept brutal working conditions). People thrown out of work will be left with private debts they cannot pay, a process which, where private debt is at a very high level, will only lead to further macroeconomic instability. Since there is no effective, reliable tendency to full employment equilibrium in market economies, when private sector aggregate demand is weak or fails, mass immigration would also tend to cause much greater and rising unemployment.

The insanity in Rothbard’s argument is also clear: it assumes that the flood of people wouldn’t cause overpopulation, soaring costs for housing or rent (given scare supply), an increase in crime and social disorder, and the collapse of national social and cultural cohesion.

Even worse, it has the mad assumption that workers are, essentially, perfectly or near perfectly substitutable. Rothbard tacitly assumes that you can take somebody from rural Bangladesh and bring them to Berlin, Hamburg, Frankfurt or Munich, and that you can substitute the Third World person for an educated skilled or semi-skilled German worker (and even a high level of substitution with unskilled labour is doubtful).

Unfortunately, if the Third World person cannot speak German, is illiterate, is unskilled, does understand German law, culture or the German work ethic, then they are not substitutable with domestic labour. The cost of teaching people German and (even if you totally dispense with wanting them to learn the national language) training them to be skilled or semi-skilled workers – certainly in large numbers – takes a considerable amount of resources and may not even succeed for a significant number of people (e.g., it is difficult to teach a mature adult to master a whole new language and many simply may not be capable of being trained up into highly skilled workers). In a Rothbardian world, this training would be left to private businesses which would raise their costs and divert resources from other industries and services. And what about the people who come who are unemployable? You are likely to get an underclass of criminals and social misfits. There is no reason to think such an open borders policy would be anything but catastrophic.

Finally, we have not even got into serious social and cultural issues. If you allow a tidal wave of people from the Third World into, say, Denmark, Spain, or Sweden, eventually these countries will cease to be Danish, Spanish or Swedish. If you allow mass immigration of people with highly illiberal, regressive, misogynist and homophobic values, then the liberal and progressive mainstream values of these countries will be destroyed.

Since we now live in a world where mainstream liberals, social democrats, Marxists and left anarchists are militantly in favour of open orders and mass immigration to varying degrees, much of the left stands with a lunatic like Rothbard in wanting a policy that – in economic, social and cultural terms – is plainly a catastrophic for the First World.

And I am afraid that the social and cultural objections to this militant left-wing open borders obsession are just as powerful as the economic objections. Unfortunately, many people on the left have been deluded by ideas from Postmodernism like extreme multiculturalism and extreme cultural relativism. To think that open borders could never cause any significant problem of any type requires that you think – just like Rothbard – that all human beings are, in social and cultural terms, perfectly or near perfectly substitutable. This is manifestly untrue.

Saturday, February 27, 2016

The Modern Monetary Theory (MMT) idea – or at least the idea shared by some supporters of MMT online – that imports are only ever a benefit and MMT is a viable policy for all nations are badly mistaken ideas.

Now MMT would work for the US, Western Europe, Australia, Japan, South Korea or Taiwan, but not for much of the Third World.

That is, MMT-style policies are best suited for advanced capitalist nations, not necessarily for Third World countries, because most of them face severe balance of payments constraints. Increasing aggregate demand would, for many Third World nations, simply cause a balance of payments crisis, as imports surged. Moreover, a huge stream of imports from the developed world tend to cripple the development of a domestic manufacturing sector in developing world nations, just as in the 19th century our Western civilisation smashed up so much of the Third World by free trade and the de-industrialisation caused by pushing our manufacturing exports on them (Bairoch 1993: 88–89). What is needed for much of the Third World is heterodox development economics, not MMT.

And, unfortunately, MMT has its limits even in the developed world. Imports aren’t always a good thing. Domestic production matters a lot. Self-sufficiency is a good thing in many commodities, e.g., food, agricultural and primary industries. Energy independence matters a lot.

Exports matter a lot even for some developed countries, because exports bring in foreign exchange if you can’t attract foreign exchange via the capital account (that is, via people bringing in foreign exchange to buy your domestic financial and real assets).

Finally, manufacturing matters – a lot. You can’t be a really great power and maintain great wealth and an advanced modern economy without manufacturing.

The US – despite what some people think – needs to remain a manufacturing colossus to remain a great power, and to be politically independent. Self-sufficiency in many commodities and a huge manufacturing sector translates into national power. You need national power to exist in a hostile world, to make credible trade deals, and to make sure you are not the victim of aggressive, bullying policies by other national powers.

Otherwise, any large enough trading power can start a trade war and cripple you by cutting off imports.

If you think imports are only a benefit, look at the devastating de-industrialisation of large parts of the Western world, e.g., in the US, look at the hollowed-out inner cities, devastated crime-ridden communities, the de-skilled, long term unemployed workers, and the collapse of all the related industries that rely on manufacturing.

BIBLIOGRAPHY
Bairoch, Paul. 1993. Economics and World History: Myths and Paradoxes. Harvester Wheatsheaf, New York and London.

It’s a catastrophe, even though some people are crowing about the admittedly large real GDP growth rates in 2014 and 2015 (at 5.2% and about 6.9% respectively). In the media, we find breathless stories about Ireland being the “fastest growing economy in Europe” as if Ireland’s brutal austerity is a viable model for the rest of Europe.

However, actual Irish real GDP still stands below its 2007/2008 peak, even after 8 years. The depth of Ireland’s collapse was on the scale of a depression (that is, where real output fell by 10% or more) and if it takes 6 years before some modest growth returns, you have to ask: how the bloody hell does anyone think this is a success story?

Friday, February 26, 2016

In other words, Trump poses as a billionaire white knight who is now a kind of class traitor: nobody can buy him because he is too rich! But all the other guys are bought and sold by corporate America.

Trump is a Republican Bernie Sanders, and both are vehement anti-establishment candidates who claim they can’t be bought.

(1) crash America or continue its economic stagnation, and accelerate its catastrophic decline under neoliberalism (because Trump will impose an extreme form of neoliberalism, albeit maybe with some trade or labour protectionism) or

Why? We know why. It’s the dirty little secret about Reagan: Reagan was a big spending Keynesian, albeit a military Keynesian. He was also a protectionist who imposed tariffs and non-tariff barriers to protect American manufacturing, primarily against the Japanese.

If we turn to Trump, his economic policies are frustratingly murky. And then there is the question of his credibility. He poses as a populist, and perhaps is just saying whatever he needs to say to win votes. Moreover, if he gets into office, it may well be back to business as usual: more neoliberal poison.

One of Trump’s major economic policy proposals is a plan for tax cuts. The tax cut plan is shamelessly regressive, with tax cuts on the wealthy and big business, although there are some cuts for the middle and working classes. But remember: this is just a like Reagan’s supply-side economics! The supply-siders pushed through a regressive plan of tax cuts, and once the Reagan administration abandoned Paul Volcker’s disastrous experiment with monetarism, Reagan pushed through big discretionary spending increases, which drove the budget into deep deficits (here and here).

The million dollar question: what will Trump’s fiscal policy be? Could it be that when he gets into office he will cut taxes but massively increase government spending, perhaps justifying the increases as military spending or rebuilding America’s infrastructure? He would then crush all opposition by smearing his opponents as unpatriotic haters of America and betrayers of the military.

The second element of Trump’s proposals relevant to economics is his immigration policy. Trump wants to do what very few establishment Republicans and no Democrat would ever do: build a huge wall and seal off the border with Mexico and deport illegal migrants. Tons of illegal immigrants.

The fact that Trump wants a huge wall and deportation of illegal aliens, possibly in the millions, will actually help American workers at the bottom of society if he managed to implement these things (though that is uncertain), because it will impose a new degree of labour market protectionism, even ultra-protectionism for workers. You think that won’t be popular? Well, corporate America is screaming with horror at this plan because they understand well what it means: that businesses must raise wages to attract domestic workers.

Trust me, your average American Joe will positively love President Trump if he does this and combined with large fiscal stimulus, because too many lower-class Americans suffer from having to compete with illegal immigrants for very low wages.

Real wages under President Trump might rise too. Democrats claim to be in favour of the working class, but none of them would have the balls to do what Trump is advocating in terms of labour market protectionism. For example, Bernie Sanders says he is vehemently against open borders, but what could he ever realistically do to stop the flow of illegal immigrants? Sanders shuns any kind of mass deportations. He’s too nice and too compassionate a man.

The third point: Trump seems to want a large degree of trade protectionism by confronting the aggressive mercantilist China and changing free trade deals. In the video below, he says something quite stunning: despite his (amusing) protestations to the contrary, possibly there is no free trade agreement that the US has signed he can think of that he likes. None. That is a brutal rejection of the mainstream US political orthodoxy on free trade. Only Bernie Sanders is this hostile to free trade.

Bernie Sanders and Trump also seem to agree on the need to put an end to the unfair trade practices of China, e.g., the de facto protectionism by undervaluing of the Chinese currency, and the off-shoring of US jobs.

Trump may well drive a huge steamroller right over the World Trade Organisation and tear up various free trade agreements. That will be bad for other countries but good for America in the long run because it will tend to encourage re-shoring and rebuilding of American manufacturing.

So again, to return to the million dollar question: will a President Trump crash the economy or turn out to be a huge deficit-spending Keynesian?

In the latter case, Trump has the capacity to be – let’s be honest – a hero president who appeals to a lot of angry working and middle class voters, if he does not succumb to austerity and budget balancing. His America-first economic nationalism might bring back some manufacturing jobs. A wall with Mexico and huge deportations of illegal immigrants will actually help the job prospects of unskilled and semi-skilled US workers.

If he is really smart, Trump will crush all opposition, cut taxes, but then ram through a huge increase in discretionary spending and run huge deficits, so that he will preside over Reaganomics Mark II.

Thursday, February 25, 2016

The fact that Donald Trump is loathed by the American Neoconservatives and has rejected key elements of neoconservative foreign policy is brought out well here.

The worst and most extreme elements of American foreign policy since 2001 have been largely the result of a wing of the Republican movement called the Neoconservatives or “neocons.”

The older Neoconservatives gravitated from the Democratic party to the Republican party in the late 1970s, and under Ronald Reagan and George H. W. Bush were considered too extreme even by the militaristic Cold war warriors under Reagan. In fact, in these years, the Neoconservatives were known in senior US policy circles as the “crazies” (I kid you not), as ex-CIA analyst Ray McGovern points out in the video below.

And Ray McGovern was a policy insider: he was a CIA analyst from 1963 to 1990, and by the 1980s was a chair of US National Intelligence Estimates and prepared the daily briefings for the President.

By the 2000s, the “crazies” had taken control of US foreign policy. The 2003 war against Iraq, for example, was designed and driven by the Neoconservative wing of the administration of George W. Bush, and the Neoconservatives captured the support of Dick Cheney, and, through Cheney, George W. Bush himself. These Neoconservatives fabricated the WMD intelligence to justify the war through a unit set up in the Pentagon called the Office of Special Plans (OSP) (in operation from September 2002 to June 2003).

If you want a fine history of the Neoconservatives and their role in the Iraq war I recommend Stephen J. Sniegoski’s The Transparent Cabal: The Neoconservative Agenda, War in the Middle East, and the National Interest of Israel (Norfolk, Va, 2008).

Although Obama retreated from some of the more extreme aspects of Neoconservative foreign policy, his actual policies have continued key aspects of it, e.g., a new Cold war with Russia in the Ukraine, and promotion of liberal democracy in the Middle East by endless war. The latter policy in particular has been disastrous, and has tended not to promote secular liberal Western-style democracy in the Middle East, but regressive and anti-Western medieval religious fundamentalism.

The promotion of secular liberal Western-style democracies in the Middle East might have been possible in the 1950s and 1960s, but the chances for this have long gone with the rise of extreme religious fundamentalism since the 1970s in that part of world. We can see how much things have changed since the 1960s in the video below. This is the president of Egypt speaking about the veil.

How times have changed in that part of the world!

In the 2000s, the neoconservatives pushed a militant, almost neo-Trotskyist, liberalism that held that establishment of secular democracy by war in the Middle East would solve the West’s problems in that region. This policy has been a spectacular failure, again and again, whether in Iraq, Libya, and Syria.

But now Trump has rejected the Neoconservatives, even though he still talks like a hawk on some issues. Crucially, Trump refused to support the Iraq war back in the 2000s – and, even worse, openly sides with the view that the 2003 Iraq war was a total disaster and justified with lies, as we see in the videos below.

In the latter video, Trump is also right to point out we don’t really know whether George W. Bush himself knew the intelligence he received on WMD was a lie: probably he did not, because George W. was – let’s face it – a rather dumb man who believed whatever his advisers told him.

In fact, what Trump said in the videos above is moderate compared to the scathing indictment of Bush (and by implication the neocons) in 2007 in the video below.

The Neoconservatives are dead set on removing Bashar al-Assad in Syria and ramping up a new Cold war with Russia, but Trump seems opposed to this. Trump has also exposed the bizarre idea that there are “moderate” insurgents in Syria in any significant numbers or strength: this has been exposed again and again as a lie.

Now these comments, as well as various other things (e.g., Trump’s open ridicule of the warmonger McCain last year), have caused the Neoconservatives to foam at the mouth; they have been gathering in lynch mobs to lynch Trump since mid-2015, but Trump has simply crushed all opposition.

A typical neoconservative is Bill Kristol of the US journal the Weekly Standard. Bill Kristol hates Trump with a passion as we see in the videos below.

Apparently, Bill Kristol has threatened to vote for a third party presidential candidate if Trump wins the Republican nomination.

Finally, this point is crucial: the victory of Trump (even with his gung-ho, loud-mouth views on some aspects of foreign policy such as Iran or Ukraine) is a savage blow to Neoconservatism. Trump will return to a more traditional, realist US foreign policy. As bad as that might be, it is not as bad as the unhinged Neoconservative policy agenda that has been highly influential in the US government since 2001.

Further Reading
These are three books I highly recommend on American policy and the Nonconservatives:

Baker, Peter. 2013. Days of Fire: Bush and Cheney in the White House. Doubleday, New York.

Sniegoski, Stephen J. 2008. The Transparent Cabal: The Neoconservative Agenda, War in the Middle East, and the National Interest of Israel. Enigma Editions, Norfolk, Va.

Wawro, Geoffrey. 2010. Quicksand: America’s Pursuit of Power in the Middle East. Penguin Press, New York.

Wednesday, February 24, 2016

We all know that Donald Trump has said some extreme and hateful things, but here he is in the videos below condemning the 2003 invasion of Iraq (in the first), and also admitting that he was once a supporter of a single payer health care system in the US. It is unclear exactly what his current health care proposal is, but it would seem that he wants (1) universal access and (2) to provide a heavy dose of government funding for anyone who cannot afford private health care.

These things are strangely out of step with the mainstream Republican party positions on these issues. Or is it that the mainstream Republican party is out of step with ordinary Republican voters?

If you go to the comments sections of these videos on YouTube, you will find some American conservatives (and I assume Republicans) venting their spleen at Trump for his “socialism” and “Big Government” policies. Nevertheless, the man is doing very well indeed in the Republican primaries. How to explain this?

Also a man who openly praises Britain’s “socialist” NHS is a very odd Republican indeed (see the video below in his comments about Scotland).

On Syria, Trump stands out as calling for some kind of de facto support for Russia and not inciting World War 3 over Syria.

Unlike other Republicans, he is also openly scornful about current free trade agreements (even if he pays lip service to the concept of “free trade”) and raises the issue of the collapse of US manufacturing and the trade imbalance with China. On these issues, he weirdly similar to Bernie Sanders.

Finally, I think I can understand why some Republicans love Trump: even with the loud-mouth talk on foreign policy (typical of other Republicans), he is the only fresh thing on the menu (if you can excuse that metaphor). He is a vehemently anti-establishment Republican and an economic nationalist, and this is very appealing.

I regret, however, Republicans might be disappointed with Trump. If Trump becomes president, what will his economic policy look like? Trump’s plan to cut taxes (heavily for the rich) but severely slash government spending will crash the US economy and possibly drive it into a deep depression. However, perhaps Trump is much smarter than this. Perhaps when he gets into office he will be the new Ronald Reagan: that is, he will cut taxes and increase government spending big time, driving the US into deep deficits. That will stimulate the economy, and make him a Keynesian big spender like Reagan, but such policies will cause the US government debt to continue to grow.

P.S. before I get idiots in the comments section this is in no sense an endorsement of Trump.

Tuesday, February 23, 2016

The EU and Eurozone are catastrophic. Of course, sanity prevailed and the UK never joined the Eurozone, but the EU itself is still catastrophic.

Britain should leave the EU as quickly as possible, for the following reasons:

(1) to protect the UK’s economic and political sovereignty;

(2) to protect its democracy;

(3) to protect its welfare state and social services;

(4) to have some hope for a Post Keynesian-style or MMT-style economic policy in the future;

(5) to take control of its borders and immigration policy, because the EU open borders policy is disastrous – disastrous for the welfare state, the working class, the real wage, the employment prospects of the British people and its very social cohesion.

The UK should follow the example of Norway and Switzerland: neither Norway nor Switzerland is a member state of the European Union, but both are part of the European Free Trade Association (EFTA).

Britain can have liberalised trade with the EU by joining the European Free Trade Association (EFTA) or by bilateral trade agreements, and obtain any necessary extra labour by controlled immigration, not open borders mass immigration.

What will happen this year as another million or more migrants come flooding into the EU?

The Germans are due for a federal election in late 2017 and the French will elect a new president between April and May 2017, and those election cycles will be dominated by the consequences of as many as 2 million new migrants in Europe. If we add to this the possibility of an economic downturn in Europe in 2016 and 2017, things could get very ugly indeed in Europe. What happens as the population is subjected to another savage round of austerity? What happens as neoliberal labour market deregulation is ramped up as the only neoclassical solution to integrating 1 million or more migrants into the labour market? Unless an historic volte face happens, the mainstream left will continue to defend the EU and mass immigration and probably discredit itself for years on end.

The population will be driven to the populist right and far right, and the mainstream right will quickly realise that any further support for the EU, open borders and mass immigration will be political suicide.

I was also struck by an article published late last year about Syriza and the migrant crisis.

According to this article, the government in office in Greece before Syriza had a “turn back the boats” policy from Turkey which stopped the flood of migrants, but when Syriza came into office they reversed this, and threw open the door to the EU. Merkel made the mistake of then opening the door to Germany and Western Europe.

And now we see the consequences of this! If true, what poetic justice indeed that the EU, after having smashed democracy in Greece in 2015, may well be hit by an existential crisis set off this year by the chain reaction of events from this one action of its victim Greece.

When the history of this period is written, it may well be said of Alexis Tsipras that he made a decision that caused the collapse of the EU.

Monday, February 22, 2016

The trouble with this idea of Marx is that, as formulated in volume 3 of Capital, Marx has insulated it against empirical refutation. As Michael Heinrich has argued here, it collapses into an anti-empirical and analytic tautology, which cannot be proven by empirical evidence. For Marx, it becomes a long-run tendency so that even if we had 1,000 years of capitalism and there was no long-run tendency of the rate of profit to fall visible in the data, Marx can evade criticism by claiming that countervailing tendencies are at work thwarting the long-run trend, or that the “long-run” is really 2,000 years or 10,000 years away.

Thus it is in the same league as the highly tautological neoclassical law of demand which is insulated against empirical refutation or testing by the ceteris paribus assumption.

As Heinrich also notes, as we analyse Marx’s argument in theoretical terms, it has severe problems: even on its own terms, in the mathematical formula for the rate of profit both the numerator and denominator can change, and the long-run tendency is not certain.

What about empirical evidence?

Unfortunately, when individual Marxists desperately try and invoke empirical evidence to prove their theology, we find their empirical evidence is hopelessly contradictory.

Their various data sets and graphs on the average rate of profit are comically discrepant and contradictory (often because they cannot even agree on the correct definition of the profit rate), as even a cursory examination of their writings on this issue in the links below shows:

Another blatant problem with the many graphs Marxists have constructed is probably that the rate of profit during the Second World War and in the immediate post-war years was unusually and abnormally high, given the massive interventions to stop wage rises, price inflation, and the massive demand for war material and other output during the war years, all of which would have tended to raise business profit rates.

So therefore a graph of profit rates from c. 1945 to 2016 – even if it did show a fall in the average rate of profit – does not prove that capitalism has a long-run tendency to a falling rate of profit, because such data would start out from a time when profit rates were abnormally high in the first place. In reality, we would need good, accurate and consistent data from the early 1800s to today in a large sample of capitalist countries to draw any legitimate conclusions about the long-run tendency of the rate of profit in capitalism.

And, of course, once we examine the reality of modern day capitalism, we discover that mark-up prices dominate most of the economy and here the rate of profit is often actively set by businesses as a mark-up on average unit costs of production.

There is, furthermore, no actual tendency to an economy-wide uniform rate of profit, not only because there are permanent, severe barriers to entry and free competition in many sectors of a real world capitalist economy, but also because the rate of profit mark-up in each industry and business will be determined by many factors such as custom, convention, different desires and needs for various profit rates, different levels of competition, and what mark-up the market will bear, etc., and these factors will themselves vary in different times and places (Lee 1994: 325–326). This activist creation of the profit rate by businesses and the severe barriers to entry and free competition in modern capitalism strongly imply that the long-run rate of profit is likely to be a random walk, and not subject to necessary, long-run tendencies, either up or down.

Saturday, February 20, 2016

To continue from my post here, Paul Bairoch’s book Economics and World History: Myths and Paradoxes (New York and London, 1993) further analyses Western colonialism, the industrial revolution, and non-Western versus Western imperialism.

Did British imperialism from the 15th to the early 19th century play a major – or indeed necessary – role in triggering the British industrial revolution?

The fact is that, economically speaking, the British empire was not very big in the early modern period and even late as 1700–1750 was not large (Bairoch 1993: 80; see also Harley 2004: 196).

Its North American territories (the most important part) only became large after the Treaty of Paris in 1763 by which Britain obtained Canada and Louisiana (Bairoch 1993: 81). But then Britain lost its Thirteen Colonies in North America to rebellion in 1776 and formally in 1783.

Even in India, the really great expansion of British territorial gains happened from the 1780s (Bairoch 1993: 81).

The Spanish and Portuguese had richer, larger colonial empires than Britain did, but why didn’t the Spanish and Portuguese undergo an industrial revolution? As late as the 1700s, the Spanish and Portuguese empires even had an export trade five to seven times larger than that of Britain’s empire (Bairoch 1993: 82).

Clearly, the possession of a colonial empire was not a sufficient condition for industrialisation, and, as we will see below, nor was it a necessary condition of the British industrial revolution. Rather, as Bairoch argues, the European conquest of the world occurred more as a consequence of the superior technology and wealth of Europeans (and power politics) which was in turn a result of industrialisation, not a condition for it (Bairoch 1993: 82, 85–86).

The British industrial revolution had its origins in the agricultural revolution of 1680–1700 which accelerated from 1720–1760 and resulted in a large grain surplus even by the 1730s (Bairoch 1993: 80). But that arose from internal progress in the yields of crops and agricultural productivity (Bairoch 1993: 80), not imperial conquests. Many of the necessary technological innovations existed by 1750, but these had nothing to do with British imperialism.

Did non-European markets in the colonies provide a necessary condition for the British industrial revolution? Once again, Bairoch argues cogently that they did not.

The role of colonial trade in spurring industry in England seems very minor. In the 18th century as the first phase of the industrial revolution gathered pace, the total export sector of the UK accounted for between 4–8% of Britain’s GDP, and of this only 33–39% of exports were bound for the Third World. So, crucially, only 2–3% of total output was exported to the Third World (Bairoch 1993: 82).

Even in individual sectors where the importance of exports to the Third World was somewhat higher such as textiles and iron, the contribution of this colonial or Third world demand was not decisive for industrial development (Bairoch 1993: 84).

Now there was one sector in the 19th century in Britain which was oriented largely towards colonial markets: the cotton textile industry (Bairoch 1993: 84–85). The revolution in British textile production was accomplished by technological innovations and use of steam power, all made possible behind high tariff barriers to keep out Indian cotton products.

By 1819/1821 cotton textile exports accounted for about 53% of production and a significant proportion of these went to colonies and the Third World (Bairoch 1993: 85). But this was only one industry amongst many in the industrial revolution, and even if colonial trade markets had been unavailable the sector would still have developed but just at a lower level of production.

Although Bairoch does not directly raise the issue, we can also address the questions: were the profits the British made from the trans-Atlantic slave trade and the slave-based production of sugar in the Caribbean necessary for industrialisation? Did they play a fundamental role in capital formation in Britain as a pre-requisite of industrial investment?

Unfortunately for that view, the reality is that the actual capital costs of the investment needed for the industrial revolution were not large at all compared to Britain’s GDP or the incomes of property owners (Harley 2004: 197). The profits from slavery barely rose from 1% of national income in the late 17th century to 1.5% by 1770, and – even if this had been totally eliminated – there were vast amounts of money capital awash in the British economy in the 1700s which could have been used to finance industrial investment (Harley 2004: 197). Moreover, the British financial sector was becoming increasing sophisticated anyway with a role for endogenous creation of credit money leveraged on a commodity money base, Bank of England notes, and the notes of the most credible private banks, so one must guard against simplistic views of the monetary and banking system often assumed in modern literature.

The contribution of the actual slave trade itself to Britain’s economy was trivial, and a significant volume of the trade occurred after the industrial take-off anyway (Eltis and Engerman 2000: 129). Moreover, the Spanish and Portuguese earned far more from the slave trade than the UK did in terms of a percentage of national income, but in neither case did profits from slavery lead to industrialisation in Spain or Portugal (Eltis and Engerman 2000: 131).

Finally, the profits earned from slave-based production of sugar in the Caribbean were not necessary for industrial take-off, nor was sugar some necessary factor input for early industrial production (Eltis and Engerman 2000: 134–135).

But to return to Bairoch’s analysis, what Bairoch does accept – as any sensible economic historian does – is that many colonies in the course of the 19th century could not implement tariff barriers to cheaper European goods, so that there was a process of de-industrialisation in much of the Third World (India being a notable example) (Bairoch 1993: 88–89). But these trends clearly occurred after the industrial take-off in Britain: this de-industrialisation was simply not a necessary condition for the first phase of the industrial revolution nor for the continuing development of it in the 19th century.

In short, if the imperialism and colonial empires had not existed, then all that would have happened is that British per capita GDP in the course of the 19th century would have been slighter lower: the industrial revolution would still have occurred and per capita GDP still have soared. The industrial revolution would not have been stopped.

Finally, in some very interesting analysis not often commented on, Bairoch analyses Western imperialism: was it unique?

As Bairoch notes, the non-Western world also has a long and horrific history of slavery, imperialism and colonialism. There is an almost pathologically dishonest unwillingness to recognise that what the West did from 1500 to c. 1950 (in the period of its direct imperialism) was in essence what non-Western empire after empire has done through the ages.

We can run through the list of imperialist powers in history that provide direct precedents for what the West did in its period of supremacy:

(1) the Achaemenid Persian empire (from the 6th to 4th centuries BC), which conquered a vast territory from Egypt, all of the Middle east to central Asia.

(2) successive dynasties of the Chinese empire, which conquered and ruled vast numbers of non-Chinese people in central Asia, and for over 2000 years exercised an indirect imperial power over Korea, Japan and parts of South Asia.

(3) the Arab empire from the 7th to 12th centuries AD and their Turkish successors the Seljuks, which conquered the Middle east, Iran, central Asia, parts of India, north Africa, and Spain.

(4) the Mongol empire, which conquered vast territories from China to the Middle East and southern Russia, in the process committing mass murder on a scale which in per capita terms may be unmatched in human history.

(5) the Ottoman empire from the 15th to the 20th century, a highly aggressive empire which conquered the Byzantine empire, much of the Middle East, North Africa, the Balkans, Hungary, and the Crimea.

As Bairoch notes:

“The fact that all these empires did not expand beyond a certain size is not attributable to a lack of colonial appetite but to the military and economic constraints of that period, which set limits on the extent of the largest empire … . But this does not imply that the non-European colonial empires were small, especially in relative terms.” (Bairoch 1993: 145).

If the Mongols had had access to the military technology of 19th century Europeans, they would easily have conquered the whole planet and in the process committed genocides undreamt of in human history.

What about the European slave trade? The slave trade in Africans conducted by Westerners lasted for about three centuries from the early 1500s to about 1870 and it is estimated that there were about 11–11.5 million victims (Bairoch 1993: 146). This was a horrific crime, and no rational person would deny it.

But this was not as brutal as the Arab slave trade in black Africans, as Bairoch notes:

“Compared to the European slave trade, that conducted by the Islamic world started earlier, lasted longer and, crucially, involved a larger number of slaves. It began in the seventh century and lasted to the end of the nineteenth. For this whole period, the transport of people from sub-Saharan Africa to the Muslim world totalled 14–15 million, of which some 8–8.5 million were from 1500 to 1890. ….

There are now fewer descendants of slaves in the Islamic world than in Christian America. This is due to the fact that a great number destined for the Islamic world were castrated. Furthermore, their mortality was high and their birth rate low. In fact, the ‘visible’ descendants of those slaves can be estimated at only a few million in the Middle East (including North Africa), whereas in America their number is approximately 70 million.” (Bairoch 1993: 147).

The mass castration of black African slaves (often boys) in the Arab slave trade was particularly brutal and increased the death toll because the operation was very dangerous. African slaves were also subject to forced death marches across the Sahara desert on their way to slave markets and horrific conditions in slave ships bound for the Middle East and India.

For instance, the transportation of African slaves to the Arab state of Zanzibar on ships was described by the British abolitionist Sir Thomas Fowell Buxton in 1840:

“Captain Moresby, to whom I have already alluded, described to me the passage coastways, in the following terms:— ‘The Arab dows, or vessels, are large, unwieldy, open boats, without a deck. In these vessels temporary platforms of bamboos are erected, leaving a narrow passage in the centre. The negroes are then stowed, in the literal sense of the word, in bulk; the first along the floor of the vessel, two adults, side by side, with a boy or girl resting between or on them, until the tier is complete. Over them the first platform is laid, supported an inch or two clear of their bodies, when a second tier is stowed, and so on until they reach the gunwale of the vessel.

‘The voyage, they expect, will not exceed twenty-four or forty-eight hours: it often happens that a calm, or unexpected land-breeze, delays their progress: in this case a few hours are sufficient to decide the fate of the cargo; those of the lower portion of the cargo, that die, cannot be removed. They remain until the upper part are dead, and thrown over, and, from a cargo of from 200 to 400 stowed in this way, it has been known that not a dozen, at the expiration of ten days, have reached Zanzebar. On the arrival of the vessels at Zanzebar the cargo are landed; those that can walk up the beach are arranged for the inspection of the Imaum’s officer, and the payment of duties—those that are weak or maimed by the voyage are left for the coming tide to relieve their miseries. An examination then takes place, which for brutality has never been exceeded in Smithfield.’” (Buxton 1840: 165–166).

It is also now largely forgotten that European themselves were for many centuries the victims of this slave trade conducted from the Middle East and north Africa from the 700s AD down to the 1800s and the number of victims probably numbered more than 2.5 million (see Davis 2004).

And who was it who ended the slave trade? As Bairoch notes, it was the British empire and European interventions which largely stamped out slavery on our planet (Bairoch 1993: 147).

All in all, Bairoch has demonstrated that:

(1) colonial exploitation was not a necessary precondition for the British industrial revolution, and

(2) Western imperialism has by no means been unique.

BIBLIOGRAPHY
Bairoch, Paul. 1993. Economics and World History: Myths and Paradoxes. Harvester Wheatsheaf, New York and London.

In reality of course, Bernie is just an honest New Dealer who wants a Western European social democracy.

And as for the top US federal marginal tax rates under Eisenhower, we can see them in the graph below. This graph shows the top US federal marginal tax rates on (1) earned income (in red) and (2) (where it diverges from the latter) ordinary income (in blue), from the the data here.

And yet even with rates under Eisenhower and Kennedy, in terms of virtually every economic measure in the book, this period was a golden age of US capitalism. A more serious issue with Sanders is the tax on speculative activity, especially if it is meant to be a Tobin tax proposal. One has to be careful with this (see Davidson 2002: 205–210), as it may not be a good thing.

What Sanders needs are good economic advisers, but I’m not sure who is advising him. What America also needs desperately is an industrial policy: government polices to incentivise, encourage and perhaps even subsidise re-shoring of manufacturing and accelerate a technological revolution in manufacturing to reduce costs of production, so that production in the US can compete against third world labour.

Friday, February 19, 2016

The economic historian Paul Bairoch (1930–1999) subjected some Marxist myths about Western capitalism and imperialism to critical scrutiny in his now classic book Economics and World History: Myths and Paradoxes (New York and London, 1993).

First, was the Western industrial revolution dependent on energy from the Third World?

Bairoch (1993: 59) notes that right up until the post-WWII era the West was almost completely self-sufficient in energy, and as late as the 1930s much of the developed world had an export surplus in products used to create energy, such as coal (Bairoch 1993: 59). The energy-dependence of the First World on the Third World arose after WWII long after the industrial revolution, so one cannot claim that energy imports by imperialism were a necessary condition for the West’s industrialisation.

Production and use of oil as a source of energy for Western industrial civilisation only really began in the late 19th century, but it remained a tiny percentage of total energy consumption right up until WWI, and even here the West was mostly self-sufficient (Bairoch 1993: 61–62). An often forgotten fact is that US consumption of energy petroleum only rose above domestic production in 1957 (Bairoch 1993: 61), so that industrialisation in the US was not dependent on imports of oil.

What about iron ore? Iron ore was crucial for Western industry, since as late as 1910 iron ore represented 95% of all metal production (Bairoch 1993: 63). However, the West was almost wholly self-sufficient in iron ore too: most production occurred in Europe where in around 1914 Europe produced 28 million of the 32 million tons in global production (Bairoch 1993: 63). In 1914, the West only depended for 2% of its total metal ore consumption on Third World production – an extraordinarily low figure which means that 98% of metal ores were produced domestically (Bairoch 1993: 65).

In production of glass, cement, paper and clay products the West was almost completely independent and not reliant on imports (Bairoch 1993: 68).

Even in raw materials that were imported from the Third World, we can note that textile fibres were mostly produced domestically in Western countries and imports from the Third World only accounted for about 22% of domestic consumption as late as the 1909–1913 (Bairoch 1993: 67).

Bairoch (1993: 68) estimates that in terms of value the West was about 94–96% self-sufficient even in raw materials around 1913.

Of the raw materials that did need to be imported from the Third World such as rubber, fertilisers, and phosphates, their total value in relation to Western exports was not large, and could easily have been obtained by international trade and paid for through export earnings: there was simply no economic need for imperialist conquest of the Third World to obtain these goods.

Bairoch’s conclusion is very important:

“… if in fact from 1955 onwards the large dependence on raw materials from the Third World was a reality, before that period it was a complete myth. The developed countries were thus able to reach a very high level of industrialization on the basis of local raw materials and also on the exploitation of their local workforces …. .” (Bairoch 1993: 70).

In other words, the vulgar Marxist explanation of Western imperialism as motivated largely or ultimately by an evil capitalist need to plunder the Third World and steal raw materials and energy necessary for industrialisation is a myth.

Now what about the Marxist and Leninist thesis that Western imperialism – especially after the 1880s – was driven by the need to find new markets for Western manufactured commodities and that this was the primary economic cause of imperialism? This was the famous thesis of Lenin’s Imperialism, the Highest Stage of Capitalism (1982 [1917]).

Once again, Bairoch demonstrates that this is a myth. Of total exports from the West from 1900 to 1938, Bairoch estimates that about 17% of exports were sent to the Third World and only 9% to actual Western colonial territories (Bairoch 1993: 72).

And – even more catastrophically for Marxist ideology – the export sector accounted for only about 8–9% of GNP of most developed nations, and total exports to the Third World were as low as 1.3 to 1.7% of the total volume of production. Exports to actual Western colonial territories accounted for as little as 0.6 to 0.9% of the total volume of production (Bairoch 1993: 73).

Throughout the 19th century, for example, the United States only exported about 0.5–0.9% of its total GNP to the Third World (Bairoch 1993: 73).

Even Great Britain – the colonialist superpower of the 19th century – exported only about 4–6% of its total production (Bairoch 1993: 73), and not all of that to its colonies, a figure which remains a low percentage. At most, Bairoch notes, exports to the Third World might have helped certain given UK sectors for limited periods of time (such as textiles), but this hardly vindicates Marxism, since it does not follow at all that this was a necessary condition for the British industrial revolution nor that British imperialism had a fundamental and underlying economic motive.

Did Western manufacturing need a captive Third World market from imperialism? The evidence shows that it did not. For a period where the data is very good, Bairoch estimates that from 1899–1938 manufacturing exports to the Third world accounted for about 5–8% of total Western manufacturing production (Bairoch 1993: 74): but this was a marginal outlet compared with domestic markets.

Even for the 19th century as a whole, Bairoch’s research suggests that perhaps on average 10% of Western manufacturing output was exported to the Third World (Bairoch 1993: 74).

Now it is true that free trade policies imposed on the Third World in the 19th century caused de-industrialisation in a number of countries, but none of this was necessary for Western capitalist development:

“… the damage caused to Third World industries by colonialism through the influx of manufactures did not in fact have a correspondingly large positive effect on the developed countries. Taken as a whole, access to Third World markets was no more than a small stimulus to the developed countries’ industries.” (Bairoch 1993: 74).

So in reality the industrial revolution and economic development of the West right up until the mid-20th century did not require as a necessary condition Western imperialism.

Without empires, the West would still have industrialised and its per capita wealth would still have spectacularly soared above the rest of the world: the miracle of capitalism would still have happened. At most, real capita GDP would have been slightly lower, but not by much.

Thursday, February 18, 2016

It’s surprising how many people have forgotten what the radical American left used to believe about this issue.

At a famous Socialist Congress that occurred in Chicago in 1910, American socialists adopted the following resolution:

“The Socialist party of the United States favors all legislative measures tending to prevent the immigration of strike breakers and contract laborers, and the mass importation of workers from foreign countries, brought about by the employing classes for the purpose of weakening the organization of American labor and of lowering the standard of life of the American workers.” (Carlton 1911: 352).

Amongst these American socialists were many Marxists or reformist Marxists, but these days Marxists seem to be militantly in favour of open borders.

A fundamental point: one of the major reasons why wages are so high in the West is that historically we have enjoyed a high degree of labour market protectionism, certainly after the late 19th century. That is to say, national borders stop immigration of huge quantities of cheap labour, so that Western labour scarcity helps to bid up the price of labour and hence real wages. This is just another example of how pure free trade and completely free movement of people from the Third World to the West are dangerous ideas largely contrary to the real world history of Western capitalism. (On a related point, a recent Bank of England working paper argues that years of mass immigration into Britain has tended to hold down real wages for semi- and unskilled British service workers forced to compete for jobs; see Nickell and Saleheen 2015).

This issue is extremely topical. In Germany (although admittedly the full details are not yet clear) there are plans afoot to create about 100,000 subsidised jobs in which private businesses may be able to pay wages as little as €1 an hour to employ migrants and have the rest of the minimum wage subsidised by the German government (see here). In other words: if you are a domestic unskilled or low-skilled German worker, your chances of getting a job will fall off a cliff as businesses can employ migrants for 1 euro an hour – even while German taxpayers dole out corporate welfare to private employers. Is that not a type of class war on the German working class? Is this not a recipe for driving ordinary German voters to the right-wing populist Alternative for Germany (AfD) party?

Wednesday, February 17, 2016

What happens as the few workers we see in these videos below are no longer needed? And, even more importantly, when middle class and professional jobs get hit by the same trend through AI and more sophisticated software?

Capitalism has both a supply-side and demand-side. As more and more work is done by machines or software, the relationship between aggregate demand growth and private sector employment growth will start to break down – or at the very least become very weak. Eventually, a government will not be able to stimulate aggregate demand as an effective solution to unemployment, because this will tend to cause more use of machines, not human beings.

The solution to this is obvious: governments need to do much more to manage the demand-side. They need to find economically and socially useful work that can still be done by human beings and also move towards a guaranteed basic income. If you want income above the guaranteed basic level, you will still need to do some work of value to human society and civilisation (e.g., science, medical and technology research, helping development in the third world, human social services etc.).

Tuesday, February 16, 2016

This can be clearly seen from Marx’s statement in Chapter 3 of volume 1 of Capital:

“The State puts in circulation bits of paper on which their various denominations, say £1, £5, &c, are printed. In so far as they actually take the place of gold to the same amount, their movement is subject to the laws that regulate the currency of money itself. A law peculiar to the circulation of paper money can spring up only from the proportion in which that paper money represents gold. Such a law exists; stated simply, it is as follows: the issue of paper money must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols. Now the quantity of gold which the circulation can absorb, constantly fluctuates about a given level. Still, the mass of the circulating medium in a given country never sinks below a certain minimum easily ascertained by actual experience. The fact that this minimum mass continually undergoes changes in its constituent parts, or that the pieces of gold of which it consists are being constantly replaced by fresh ones, causes of course no change either in its amount or in the continuity of its circulation. It can therefore be replaced by paper symbols. If, on the other hand, all the conduits of circulation were to-day filled with paper money to the full extent of their capacity for absorbing money, they might to-morrow be overflowing in consequence of a fluctuation in the circulation of commodities. There would no longer be any standard. If the paper money exceed its proper limit, which is the amount of gold coins of the like denomination that can actually be current, it would, apart from the danger of falling into general disrepute, represent only that quantity of gold, which, in accordance with the laws of the circulation of commodities, is required, and is alone capable of being represented by paper. If the quantity of paper money issued be double what it ought to be, then, as a matter of fact, £1 would be the money-name not of 1/4 of an ounce, but of 1/8 of an ounce of gold. The effect would be the same as if an alteration had taken place in the function of gold as a standard of prices. Those values that were previously expressed by the price of £1 would now be expressed by the price of £2.

Paper-money is a token representing gold or money. The relation between it and the values of commodities is this, that the latter are ideally expressed in the same quantities of gold that are symbolically represented by the paper. Only in so far as paper-money represents gold, which like all other commodities has value, is it a symbol of value.” (Marx 1906: 143–144).

So what Marx is saying here is as follows:

(1) paper money represents gold to the same amount as its face value;

(2) the paper money has to be backed by the same amount of gold, and if the state pumped out vast amounts of paper money in excess of the gold reserves, the standard of value would collapse (or as Marx says, “There would no longer be any standard”);

(3) paper money represents gold and it is clearly implied here that it needs to be officially convertible into gold at a fixed rate.

This rules out fiat money, and it is obvious that Marx was a metallist.

BIBLIOGRAPHY
Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

(2) For Marx, the total working day is divided into two parts of the working day as follows:

(1) necessary labour-time, which is “determined by the working time required for the reproduction of the labour-power of the labourer himself” (Marx 1906: 256), and

(2) the surplus labour-time (Marx 1990: 341).

The capitalists only tend to pay for the value of labour-power and steal the value of surplus labour-time (or surplus value s). The necessary part of the working day is determined by the value of variable capital v bought by the capitalist (Marx 1990: 326), which is value of labour-power. The rate of surplus value is s/v (Marx 1990: 324; Brewer 1984: 43), which is also the rate of exploitation.

(3) Exploitation for Marx, in its most important sense, arises from the (alleged) manner in which capitalists tend to pay only a wage equal to the value of labour-power, which is the value of reproduction and maintenance of workers, and so this allows the capitalist to steal the value of surplus labour time.

Capitalists can increase this exploitation by increasing the total working day to extend the surplus labour time of workers (and so gain more absolute surplus value) or decreasing the real wage equal to the value of reproduction and maintenance of workers (which is called by Marx relative surplus value). For Marx, the rate of surplus value is the rate of exploitation.

(4) but the long-run trajectory of capitalism in first world countries is to decrease the working day, so that capitalists have not in the long run been able to increase extraction of surplus value by relentlessly increasing the working day.

(5) furthermore, the crux of Marx’s argument is that workers tend only to be paid a wage equal to the value of reproduction and maintenance of workers (a type of subsistence wage), so that this in turn is equal to that part of the working day necessary only for the reproduction and maintenance of labour-power: the hours of the working day beyond this represent the surplus labour time, whose value is surplus labour value extracted from labour.

(6) but the long-run tendency of capitalism is to increase the real wage, even for workers. The real wage – even for workers – has, generally speaking, soared in the past 160 years and has soared well above subsistence level.

(7) even worse for Marx, the long-run tendency of capitalism is to make work less intense and arduous in many industries through use of machines and automation, so that, for example, the socially necessary labour time needed to build a house is far less today than it was 100 years ago, because of machine tools. So therefore many types of workers have seen a rising real wage and a less arduous working day with respect to the same type of work people did 100 years ago, even while their working day has remained stable or even declined.

(8) it follows directly that capitalists cannot be succeeding in stealing more relative surplus value by holding down the real wage to subsistence levels.

(9) if the working day is stable or falling in the long run, and the real wage has a long-run tendency to rise, then it follows that people are being paid more and more above subsistence level, and that they are being paid more and more for their surplus labour time, sometimes for all their surplus labour, and in some cases perhaps even more than their surplus labour time.

The conclusion is clear: under the logic of Marx’s own theory, capitalism has historically had a tendency to reduce the rate of exploitation. Marx should have been talking about the glorious tendency of capitalism to reduce its exploitation of the working class!

Had Karl Marx only lived another 30 years, the old fraud may even have been forced to recognise that his central claim in volume 1 of Capital – that capitalism only ever increases the extraction of unpaid surplus labour value – was false, given the soaring real wages even of workers.

One of the most absurd aspects of the Marxist and communist mentality is the militant unwillingness to recognise that the Soviet Union practised its own form of imperialism, and that there is no special reason to imagine that powerful communist states – if they existed – would avoid imperialist behaviour, given that, no matter whether a state is communist or capitalist, it will almost inevitably be drawn onto the world stage to protect its interests and access to resources and markets.

(Another issue, as I have argued here, is that a communist state engaged in mass industrialisation, under current technological constraints, would also inevitably produce huge greenhouse gas emissions, just like a capitalist state, but I digress.)

To return to my main point, take the history of the Soviet Union: the Soviet Union was simply the successor state of the Russian empire, a European state whose whole history was one of imperial and colonial expansion from its centres in the West into central and east Asia.

When the Bolsheviks came to power, they reconquered most of this empire in the Caucasus, central Asia and east Asia, and in the process brought millions of non-Western people under authoritarian communist rule and maintained the colonialist Russian ethnic minority presence in these regions. Their history of dealing with their non-Western subjects was just as brutal as their treatment of everybody else.

How was that not imperialism?

Very similar observations can be made about China under communist rule. Communist China inherited the multi-ethnic empire of the Manchu emperors, which was the product of centuries of imperialism, not only of the Manchu dynasty but also previous dynasties of Chinese emperors. Moreover, have Western Marxists forgotten the 1950 Chinese invasion of Tibet?

And then of course we could mention Stalin’s brutal treaty with Hitler to carve up Poland, or Stalin’s takeover of Eastern Europe, or the Soviet Union’s invasion of Afghanistan.

An effective end to hard or soft imperialism – whether in a communist or capitalist state – would require either (1) an enlightened ruling elite who refused to engage in this behaviour or, more likely, (2) a majority of people in any given country to oppose imperialist behaviour and capable of enforcing its will on the government.

Exploitation for Marx, in its most important sense, arises from the (alleged) manner in which capitalists tend to pay only a wage equal to the value of labour-power, which is the value of reproduction and maintenance of workers, and so this allows the capitalist to steal the value of surplus labour time. Capitalists can increase this exploitation by increasing the total working day to extend the surplus labour time of workers (and so gain more absolute surplus value) or decreasing the real wage equal to the value of reproduction and maintenance of workers (which is called by Marx relative surplus value).

Again, the worker tends to be paid a wage equal to the time taken during the working day necessary for the reproduction and maintenance of labour-power, and the hours of the working day beyond this represent the surplus labour time, whose value is surplus labour value extracted from labour.

But note carefully: this theory only works if real world wages of labour tend to equal the value of reproduction and maintenance of workers, which is a type of subsistence wage.

However, wages even for workers have soared above subsistence levels, and clearly did so even in the 19th century, as noted here. Moreover, the total working day has fallen in the long run even as real wages have soared.

Once we see that workers, generally speaking, are paid well above subsistence levels and in the long run their real wages are rising, Marx’s theory of increasing exploitation based on surplus value implodes, because if people are being paid more and more above subsistence level, then they are being paid more and more for their surplus labour time, sometimes for all their surplus labour, and in some cases perhaps even more than their surplus labour time.

For example, in Germany the poverty line for a worker and spouse with two children is a monthly income of €1,873. However, it is clear that even this income provides a standard of living that is vastly better than the subsistence wage equal to the value of labour-power imagined by Marx, and moreover it can buy all sorts of goods that would have been considered luxuries in the 19th century as well as goods that did not even exist then. For example, it is absurd that, under Marx’s subsistence wage equal to the value of labour-power, a worker would require a television, DVDs, mobile phones, and the host of other modern articles of consumption now enjoyed even by workers, for none of these things are actually needed for working people merely to live and reproduce themselves.

Nevertheless, if we look over the average monthly earnings data for German workers here, we can see that virtually all jobs provide an average monthly salary well above the modern poverty line. The average monthly salary in German manufacturing is €4,242 – a wage vastly above anything that could be described as subsistence level.

If we able to aggregate all human labour with a homogeneous unit of Marx’s abstract socially necessary labour time, and then set an appropriate wage rate for one simple hour of labour, it would follow from the data that most wages in modern capitalism are well above Marx’s value of labour-power, and it would be very likely that many workers suffer very little exploitation or no exploitation at all in Marx’s sense because they are paid not only for necessary labour-time but also surplus labour-time or most of surplus labour time too – for if they were not their wages would have been stagnating for over 100 years at subsistence levels.

Marx’s whole theory of exploitation is dependent on the idea that workers must tend to be paid a subsistence wage equal to the value of reproduction and maintenance of labour, but once we see that wages in capitalism have soared above subsistence level this is shown to be false, and the whole theory comes crashing down.

Another point is that for a self-employed worker who owns, runs and works alone in his own business, Marxist exploitation cannot arise. Even worse, Marx distinguished between so-called “productive” and “unproductive” labour and seems to have argued that vast sections of what we would now call the service economy do not add surplus value (e.g., see Capital, volume 3, Chapter 17), even though they manifestly do produce profits and account for a huge percentage of employment in modern capitalism. How is a person in a service industry who produces no surplus value being exploited in Marx’s theory? Of course, Marx would argue that surplus value from value-producing industries is redistributed, but, again, that only works if labour tends to be paid just for its value of reproduction and maintenance (that is, a subsistence wage), which, as we have seen, is generally just not true.

A final point is that once Marx’s idea that commodities tend to exchange at true labour value is overthrown (as in volume 3 of Capital), it follows that many commodities can sell for prices well above their labour values and businesses can afford a wage to workers well above subsistence level and even covering their surplus labour time, a state of affairs which would not even involve exploitation by extraction of unpaid surplus labour value.

BIBLIOGRAPHY
Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Friday, February 12, 2016

Why? Because an economy with more and more automation based on private enterprise and private capitalist production could still sell its output and obtain money profits, if a government managed the demand-side of the economy by providing a guaranteed income (with, say, taxes on consumption, property, and ownership of financial and real assets and returns from those assets, with the shortfall covered by central bank money creation). As long as the balance of payments functioned successfully, a type of capitalism could continue.

That is, such an economy would still be a variety or type of capitalism: it would not be a command economy or the type of socialism envisaged by Marx.

Any Marxist response to this depends on Marx’s definition of capitalism. If one wants to define capitalism merely as a system of private production based on employment of free human wage labourers, then of course capitalism would cease once employment of free human labour ceased.

But this is just playing with words: setting up a narrow analytic definition of capitalism (true by definition), and ignoring other obvious real world aspects of capitalist systems of production.

If capitalism is to be defined in any empirically-defensible sense, it would need to use the following criteria:

Capitalism is a system of production as follows:(1) where the vast majority of all capital goods are owned privately and where there is a high degree of private property (in land, houses, private possessions, etc.) and rights to private property;

(2) where the vast majority of all decisions on investment and production of commodities are made by private agents (though this does not exclude certain public goods);

(3) where there exists a class of free human beings who work for a wage, either from the private or public sector (though mostly in the private sector).

Now if (3) fell and fell or even ceased to happen in an economy where production is increasingly done by machines, then it would still leave us with criteria (1) and (2).

The new system of nearly fully or fully automated production would in essence still be a type of capitalism, because it would still have traits (1) and (2), which clearly lie at the heart of what capitalism is.

In short, it would not be a system where all business is owned by the state or where the state plans all economic activity, and there is no necessary reason why a capitalist mode of production must end even if human wage labour falls towards zero.

We must remember that for Marx money is a special commodity that itself must have a labour value so it can function as a universal medium of exchange and numéraire. That is the basis by which money can exchange for other produced commodities under the law of value in volume 1 of Capital. But fiat money utterly destroys this basis of Marx’s labour theory of value and his theory of exchange value in volume 1.

It would follow that the trendy modern Marxist idea of the MELT is entirely intellectually bankrupt too, under Marx’s dogmatic metallist theory of money.

In the post above, the Marxist author agrees that modern fiat money has destroyed the ability of money to properly reflect Marx’s labour values. How, then, could Marx’s theory still be right? The answer: modern currency is not really money at all! In addition, prices and labour values diverge as in volume 3, but now fiat money has destroyed even any relation between values and prices of production even as postulated in volume 3 of Capital, since this is (apparently) the trajectory of capitalism as supposedly prophesied by Marx.

What is the worth of this argument? It is refreshingly honest at the very least. But there is a strange fallacy of equivocation in the argument. The words “money” and “currency” are given different meanings: money means a produced commodity with the labour value used as a unit of account and “currency” merely a token symbol for the money commodity.

But actually the basic concept of money does not at all require either the metallist or Marxist mythology that it must be a produced commodity.

The basic definition of money is something which fulfils these three functions:

(1) a medium of exchange;

(2) a unit of account, and

(3) store of purchasing power.

The very idea that money must of necessity be a produced commodity was a delusion and error of economic theory. If fiat money is impossible, then our modern economies would have collapsed decades ago when money was severed from gold in the 1930s for domestic economic transactions, and certainly since the end of Bretton Woods (a system in which gold only had a role in the international payments system anyway).

Marx was fundamentally wrong about money and modern fiat money certainly explodes the law of value in volume 1 of Capital.

Chapter 13 of volume 1 of Capital is called “Co-operation” and it deals with the concept of cooperation of workers in production process and with historical aspects of the development of capitalist modes of production.

Marx sees cooperation in capitalism as having three historical forms (1) simple co-operation, (2) manufacture, and (3) modern industry, but the earlier forms can persist within modern capitalism (Brewer 1984: 50).

At the beginning of capitalist history, Marx sees changes in the mode of production:

“Capitalist production only then really begins, as we have already seen, when each individual capital employs simultaneously a comparatively large number of labourers; when consequently the labour-process is carried on on an extensive scale and yields, relatively, large quantities of products. A greater number of labourers working together, at the same time, in one place (or, if you will, in the same field of labour), in order to produce the same sort of commodity under the mastership of one capitalist, constitutes, both historically and logically, the starting point of capitalist production. With regard to the mode of production itself, manufacture, in its strict meaning, is hardly to be distinguished, in its earliest stages, from the handicraft trades of the guilds, otherwise than by the greater number of workmen simultaneously employed by one and the same individual capital. The workshop of the mediaeval master handicraftsman is simply enlarged.” (Marx 1906: 353).

In initial stages of capitalism, there arises merely a quantitative difference in the number of workers employed and the surplus value produced by industry (Marx 1990: 439).

When groups of workers work in industries there arises the concept of social labour:

“The labour realised in value, is labour of an average social quality; is consequently the expenditure of average labour-power. Any average magnitude, however, is merely the average of a number of separate magnitudes all of one kind, but differing as to quantity. In every industry, each individual labourer, be he Peter or Paul, differs from the average labourer. These individual differences, or ‘errors’ as they are called in mathematics, compensate one another and vanish, whenever a certain minimum number of workmen are employed together.” (Marx 1906: 354).

“Deviations would occur in individual cases. If one workman required considerably more time for the production of a commodity than is socially necessary, the duration of the necessary labour-time would, in his case, sensibly deviate from the labour-time socially necessary on an average; and consequently his labour would not count as average labour, nor his labour-power as average labour-power. It would either be not saleable at all, or only at something below the average value of labour-power. A fixed minimum of efficiency in all labour is therefore assumed, and we shall see, later on, that capitalist production provides the means of fixing this minimum. Nevertheless, this minimum deviates from the average, although on the other hand the capitalist has to pay the average value of labour-power. Of the six small masters, one would therefore squeeze out more than the average rate of surplus-value, another less. The inequalities would be compensated for the society at large, but not for the individual masters. Thus the laws of the production of value are only fully realised for the individual producer, when he produces as a capitalist, and employs a number of workmen together, whose labour, by its collective nature, is at once stamped as average social labour.” (Marx 1906: 355).

Large numbers of workers employed in special buildings with fixed capital goods are the hallmark of capitalist production. Fixed capital using larger numbers of workers producing a large output has the advantage of providing economies of scale (Marx 1990: 442; Harvey 2010: 172).

Marx now points to his fundamental point:

“When numerous labourers work together side by side, whether in one and the same process, or in different but connected processes, they are said to co-operate, or to work in cooperation.” (Marx 1906: 357).

A mass of labour can do much more than individual workers (Marx 1990: 445).

As Marx explains:

“The combined working day produces, relatively to an equal sum of isolated working-days, a greater quantity of use-values, and, consequently, diminishes the labour-time necessary for the production of a given useful effect. Whether the combined working-day, in a given case, acquires this increased productive power, because it heightens the mechanical force of labour, or extends its sphere of action over a greater space, or contracts the field of production relatively to the scale of production, or at the critical moment sets large masses of labour to work, or excites emulation between individuals and raises their animal spirits, or impresses on the similar operations carried on by a number of men the stamp of continuity and many-sidedness, or performs simultaneously different operations, or economises the means of production by use in common, or lends to individual labour the character of average social labour—which ever of these be the cause of the increase, the special productive power of the combined working day is, under all circumstances, the social productive power of labour, or the productive power of social labour. This power is due to cooperation itself. When the labourer co-operates systematically with others, he strips off the fetters of his individuality, and develops the capabilities of his species.” (Marx 1906: 361).

These productive powers of masses of workers are organised by individual capitalists, but such large numbers require large capital for the payment of wages as well as for the purchase of constant capital (Marx 1990: 447–448; Brewer 1984: 51). But this in turn leads to the concentration of the means of production in the hands of capitalists.

Marx now gives his view on the motivations of capitalists:

“The directing motive, the end and aim of capitalist production, is to extract the greatest possible amount of surplus-value, and consequently to exploit labour-power to the greatest possible extent. As the number of the co-operating labourers increases, so too does their resistance to the domination of capital, and with it, the necessity for capital to overcome this resistance by counter-pressure. The control exercised by the capitalist is not only a special function, due to the nature of the social labour-process, and peculiar to that process, but it is, at the same time, a function of the exploitation of a social labour-process, and is consequently rooted in the unavoidable antagonism between the exploiter and the living and labouring raw material he exploits.” (Marx 1906: 363).

Production on a large scale also requires special supervisors:

“If, then, the control of the capitalist is in substance twofold by reason of the twofold nature of the process of production itself,—which, on the one hand, is a social process for producing use-values, on the other, a process for creating surplus-value—in form that control is despotic. As co-operation extends its scale, this despotism takes forms peculiar to itself. Just as at first the capitalist is relieved from actual labour so soon as his capital has reached that minimum amount with which capitalist production, as such begins, so now, he hands over the work of direct and constant supervision of the individual workmen, and groups of Workmen, to a special kind of wage labourer. An industrial army of workmen, under the command of a capitalist, requires, like a real army, officers (managers), and sergeants (foremen, overlookers), who, while the work is being done, command in the name of the capitalist. The work of supervision becomes their established and exclusive function. When comparing the mode of production of isolated peasants and artizans with production by slave labour the political economist counts this labour of superintendence among the faux frais of production. But, when considering the capitalist mode of production, he, on the contrary, treats the work of control made necessary by the co-operative character of the labour process as identical with the different work of control, necessitated by the capitalist character of that process and the antagonism of interests between capitalist and labourer.” (Marx 1906: 364–365).

Capitalist co-operation, however, stands in contrast to previous forms:

“The sporadic application of co-operation on a large scale in ancient times, in the middle ages, and in modern colonies, reposes on relations of dominion and servitude, principally on slavery. The capitalistic form, on the contrary, presupposes from first to last, the free wage labourer, who sells his labour-power to capital. Historically, however, this form is developed in opposition to peasant agriculture and to the carrying on of independent handicrafts whether in guilds or not. From the standpoint of these, capitalistic co-operation does not manifest itself as a particular historical form of co-operation, but co-operation itself appears to be a historical form peculiar to, and specifically distinguishing, the capitalist process of production.”(Marx 1906: 367).

As Harvey (2010: 172) notes, Marx does seem to think that cooperation per se is a positive thing and it would continue under communism.